I recently encountered a client that asked for my advice on whether to pursue a Patent, or to go through the process of setting up Trade Secret Protection. They are really excited about their idea, like many inventors are, and were ready to get it to market ASAP. This is a common problem that most inventors encounter when trying to decide whether pursuing a patent is worth all of the expense, the waiting (the average time to obtain a patent from the USPTO is about 21 months…assuming there are no hiccups), and the hassle of haggling back and forth with an Examiner that doesn’t seem to understand your invention.

For the last 226 years patents have provided inventors and intellectual geniuses the benefit of:

1. Preventing theft of the their invention

This is particularly important for sole proprietors and startup companies because they may initially seek a licensing deal or an investor for an infusion of cash. This is often benefited from a patent application being filed with the USPTO, as most potential licensees and investors would prefer for the invention to first be disclosed. The best way to protect yourself from these individuals from stealing your potentially patentable idea, it is best to have a patent application on file. Otherwise the investor or licensee may reject the offer to license or invest but turn around and file their own patent application.

2. Higher Profit Margins

Obtaining a U.S. Patent provides the inventor(s) the permission to exclude others from making, using offering for sale and importing the invention into the United States as claimed in the patent. With adequate market demand for the patented product, the ability to exclude others reduces the supply of the product or process in the marketplace. And, as the laws of supply and demand dictate, patent owners may have the opportunity to charge higher prices for the patented product or process.

3. Reducing Competition

The reduction of competition is an important one, as patents may also serve as a barrier to entry for competitors who are contemplating entering the market for the patented idea or service. In short, if you can get to market first, with the most protection for your patented idea, you have the advantage of being the first to acquire legitimate profits, with reduced risk. Competitors may consider the risks of patent infringement greater than the rewards of potential profits.

4. Encourage Settlement

During litigation, both parties will assert various claims against each other including patent infringement. In certain instances, two patent owners may agree to cross license the respective patented technologies to each other instead of litigating the issues. Having the necessary leverage of a patent application, will encourage limited litigation costs, and more cooperation from potential competitors to work with you, instead of against you.

5. Expanding their Target Market

This point is probably the most important one for most companies and start-up. Most companies are entering a market for one reason…to make money. You cannot make money unless you have a substantial share of the market in comparison to your competitors. This market can be considered to be global, national, or even regional depending on your business strategy. Patented technology can be licensed to others in a geographical market, in a different market, and even in a different technical field.


Defend Trade Secrets Act of 2016 – Things To Consider

Prior to the Defend Trade Secret Act of 2016 (DTSA), the best route for an inventor to consider with minimal risk, was to obtain a Patent. In my opinion this still is the best route, but with the new signing of the DTSA by President Barack Obama, inventors now have more protection afforded to them that they did not have before. Prior to the signing of DTSA, a trade secret was a “share at your own risk” challenge. However, over the last decade, more and more courts have given more respect, to various steps taken in order to protect trade secrets within various industries.

Before the DTSA, companies seeking civil remedies for misappropriation of their trade secrets were generally limited to state law enforcement. Although 48 states have adopted the Uniform Trade Secrets Act (UTSA) in some form, there are significant differences among the states in the application of the UTSA. Moreover, companies were usually limited to litigating in state court, except in cases where federal diversity jurisdiction exists. As such, the importance of the signing of this legislation into law is significant. We now have, for the first time, a federal civil remedy for the misappropriation of trade secrets.


Litigants Beware of Existing State Law – DTSA DOES NOT Preempt

This new law provides a clear, unified method for federal courts to follow in order to enforce misappropriation of trade secrets suffered by individuals and companies alike. However, how useful, beneficial and unified this law will be, has yet to be seen. The DTSA still has hurdles to get over. The DTSA does not preempt any existing state laws governing trade secret enforcement. Accordingly, to the extent that state laws differ from each other and the DTSA, the differences will likely persist despite the new federal scheme. As such, litigants will need to be very careful about where they bring their action, and which laws to use in enforcing trade secrets. A careful examination of applicable state laws, differences in statutes of limitations, and the comparisons with the DTSA are needed.


Additional Benefits – Whistleblower Immunity and Employer Obligations

The DTSA also provide additional benefits that could provide additional incentive to consider the trade secret route. Included are provisions to protect whistleblowers who disclose alleged trade secrets in confidence to the government. This provision was put in place in order to address concern that non-disclosure obligations in employment contracts may act to prevent people from disclosing evidence of criminal conduct. The DTSA instead provides immunity, civilly and criminally for the disclosure of a trade secret that is made “in confidence to a Federal, State, or local government official, directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law.” For many companies, they will need to revise their employment agreements and confidentiality agreements to ensure that they provide employees with notice of this immunity.


Trade Secret Benefits

With these new developments and increased enforcement, trade secret protection may soon become a more viable option for most companies and inventors. Further, the benefits that are provided with the keeping of a trade secret, considering the risk taken of not possessing a patent, can provide a series of potential advantages.

1) Trade secret protection can extend to virtually any type of information that is secrets and provides an actual or potential economic advantage over others. Essentially, a trade secret can extend much further in scope that most patents will allow you to possess.

2) In many instances it can be much easier to establish liability for trade secrets theft than to establish patent infringement. To establish literal infringement in a patent infringement case, the accused products must include each and every element of a single claim in order to literally infringe the claim. in contrast, a finding of trade secret misappropriation does not require the showing of every element, but rather it can rest on the access the accused had and substantial similarity. This shifts the burden to the defendant to establish independent development of the infringing products.

3) There aren’t any limitations on the recovery of trade misappropriation damages. In a patent case, the plaintiff must show actual damages and there is no recovery for unjust enrichment. As such, the damages that could be recovered are limited with a glass ceiling. Whereas, damages in a trade secret misappropriation case can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation. With the inclusion of unjust enrichment, there is a potential for a substantial reward to be provided.

4) There is the potential for increased damages for willful an deliberate misappropriation. Ultimately this also leads to a lower bar to satisfy in order to receive increased damages for willful and deliberate misappropriation as compared to willful and deliberate in a patent infringement suit. Because of the risk a trade secret owner takes in losing their proprietary information forever once disclosed, an injunction to prevent trade secret misappropriation can be issued to prevent both actual or threatened misappropriation and use.

While patents and trade secrets both offer their advantages and disadvantages, it is important for companies and inventors alike, to make the best decision for their business strategy and business goals. It is important to assess all of the risks and to seriously consider consider all options available for not only the short term, but the longer term as well. All in all, it is more than clear that we are seeing a great deal of momentum shifting towards the use of trade secrets, and an even greater promotion of innovation within our country.